Rental Accounting Advice for Landlords and Property Managers

in Property Management Tips

Becoming a landlord or property manager requires a myriad of new skills – some of which you probably already have, and some of which you’ll probably have to learn. While maintenance and repairs, rental marketing, or real estate law may come easy to you, accounting is something that you may or may not be familiar with depending how experienced of an investor you are. As with any business venture, establishing a comprehensive accounting system is critical to track your income and expenses and keep a detailed record of your financials. 

person holding pencil near laptop computer

Beyond keeping track of income and expenses, property managers have industry-specific accounting needs like holding security deposits, calculating rent increases or bank reconciliation. Recording and tracking the right information will set you up for success when tax season rolls around, and also put you in a position to secure funding if you choose to purchase additional properties in the future. 

Here are a few accounting tips and tricks for landlords and property managers:

Build a clear divide between personal and business finances

The easiest way to keep finances straight and your records clear is to have separate accounts for your personal needs and your rental business. Some landlords choose to open separate accounts for each property owned, which typically makes sense for multifamily properties where multiple payments and expenses are coming in from different units. 

black Android smartphone near ballpoint pen, tax withholding certificate on top of white folder

If you are a property manager and do not own your own properties, you are required to have a separate bank account for your business and should be familiar with trust accounts. Commingling funds is illegal, so you must keep property owners’ assets separate from your own. 

Create a system that works for you

In order to grow your business, you will need to have a detailed and organized accounting system that allows you to easily understand where each property stands financially. If you’re managing multiple properties, you need a system that ensures tenants are paying rent in full and on time so your property stays within budget and maintains profitability. Your process can be unique to you, but you’ll want to create specific steps for when, why and how you will consistently post and track transactions related to your rental. You’ll also need to make sure all transactions are regularly recorded and that you can easily access these records. 

white Canon cash register

Accounting and financial reporting can be extremely time consuming and overwhelming if it’s not something you’ve done in the past, so many landlords choose to work with a professional accountant or use a property management accounting software. 

Keep a reserve fund for unexpected expenses

Keep a reserve fund stocked to help finance planned and unplanned maintenance and repairs for your property, especially emergency situations. Your reserve fund can also act as a savings account for larger maintenance projects like replacing a roof, repainting exteriors, or replacing a heating/cooling system. 

Even if unexpected damage is the fault of your tenants, you may still have to pay for the out of pocket repairs to return the property to a habitable – and rentable – condition. 

Research your accounting software options

Some investors rely on spreadsheets or even an old fashioned pen and paper method to handle property accounting, but as your portfolio grows, this method is likely to get out of hand quickly. Modern software solutions can automate many of the processes you’ll need to go through each month, and easily record all of your business transactions in one place. 

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Programs like QuickBooks are another option highly utilized by property managers and landlords. QuickBooks is helpful for tracking transactions, invoices, associated payments and balances, but still has some limitations when it comes to accounting steps unique to property management. If you’re just starting out or managing limited properties, this could be a great option for you. If you’re looking for more tools and trying to stand out from the competition, software specifically designed for property managers is probably your best bet. 

Software designed specifically for the industry is a great tool to streamline the accounting (and other business tasks) that are associated with managing rental properties. Most property management accounting software includes additional features like electronic rent payment options, 1099-MISC reporting features, tenant and owner portals, tenant screening and application features, and mobile systems that can be accessed virtually. 

Carefully review reconciliation statements

Reconciling your accounts is a way to ensure your money is accurately accounted for, showing compliance and setting you up for success should your business ever be audited. Putting aside time to complete the reconciliation process is the first step – monthly reconciliation is necessary, but adding a weekly ban-to-ledger comparison is a good idea.  

The accuracy of your reconciliation will depend on the method you choose. Some landlords and property managers choose to do the process by hand, while others take advantage of bank synchronization tools included in many software programs. A bank synchronization will compare and match transactions from a bank account to those included in the software, which allows landlords to update missing details and locate errors or omissions. Using a bank synchronization tool can be a huge time saver for busy landlords managing multiple properties. 

Prepare early for tax season 

Staying on top of your rental accounting throughout the year is the easiest way to make tax season as stress-free as possible. If you have a strong accounting system put in place, you should be able to access all the data required to file taxes, submit 1099-MISC forms, and provide property managers with any records they’ll need for their taxes. 

black Android smartphone

Besides actually filing and paying your yearly taxes, one of the biggest hurdles for property managers is 1099-MISC reporting. The IRS requires landlords to issue a 1099-MISC tax form for any service or property owner who received more than $600 related to their rental business. 

Filing taxes as a real estate investor will always be a bit complicated, but keeping detailed records and documentation and planning ahead will give you a leg up. If you have any questions or are unclear on the tax filing process for your rental business, you should always consult a professional. 

Final thoughts

You don’t need to be an accountant to successfully run your property management business, but the more properties you acquire, the more difficult and time consuming the process can become. Creating a consistent system and understanding the necessary steps will set you up for success, as will researching industry tools and resources to help you stay organized. If you ever find yourself in over your head or even with a simple question from time to time, tap into the expertise of a professional experienced in the rental industry for help. 

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